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On August 27, the CFPB released its fourth biennial report on the state of the credit card market as required by Section 502 of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The 2019 report covers the credit card market for the 2017-2018 period. In opening remarks, CFPB Director Kathy Kraninger notes that with the passage of time, it has become “increasingly difficult to correlate the CARD Act with specific effects in the marketplace that have occurred since the issuance of the Bureau’s last biennial report, and, even more so, to demonstrate a causal relationship between the CARD Act and those effects,” and therefore, future reports will focus more on overall market conditions. Key findings of the report include, (i) total outstanding credit card balances continue to grow; (ii) total cost of credit stood at 18.7 percent at the end of 2018, which is the highest overall level observed by the Bureau in its biennial reports; (iii) total credit line across all consumer credit cards reached $4.3 trillion in 2018, which is largely due to the increase in unused credit lines held by superprime score consumers; and (iv) consumers are increasingly using their cards through digital portals, including those accessed via mobile devices.
Regarding current trends, the report notes that over the last few years, the total amount of credit card spending has grown “much faster” than the total volume of balances carried on the cards. In addition, while cardholders with prime or superprime credit scores still account for most debt and spending, lower credit score consumers have been increasing their debt at a faster rate than cardholders with higher credit scores. Notably, delinquency and charge-off rates still remain lower than they were prior to the recession, even though they have slightly increased in recent years. Additionally, since the last report, issuers have lowered their daily limits on debt collection phone calls for delinquent accounts and average daily attempts remain “well below” stated limits. Issuers are also beginning to supplement communications for account servicing with email and text messages.
On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.
On August 23, House Financial Services Committee Chair, Maxine Waters (D-Calif) and 101 other members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the Bureau’s recent amendment of and delay to certain ability-to-repay provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule), previously covered by InfoBytes here and here. Specifically, the letter opposes the CFPB’s decision to remove certain ability-to-repay requirements, as well as the Bureau’s June 2019 decision to delay the August 19 compliance date for the mandatory underwriting provisions of the Rule until November 19, 2020. The letter cites to an April 30 subcommittee hearing that examined the payday lending industry and argues that “payday and car-title lenders lack the incentive to make loans that borrowers have the ability to repay while still being able to afford basic necessities of life.” The agency, according to the letter, is betraying “its statutory purpose and objectives to put consumers, rather than lenders, first” by delaying the Rule’s implementation.
Additionally, in the press release announcing the letter, Waters also expressed concern that the CFPB had not yet asked the U.S. District Court for the Western District of Texas to lift a stay of compliance so that the payment provisions of the Rule could be implemented. As previously covered by InfoBytes, two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. The court recently ordered the stay of the full Rule’s compliance date to remain in full force and effect and requested another joint status report from the parties by December 6.
On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”
On August 16, the CFPB announced Robert G. Cameron as the Bureau’s private education loan ombudsman. Cameron, who served in the U.S. Army for 29 years and is a Colonel and Staff Judge Advocate for the Pennsylvania Army National Guard, joins the Bureau from the Pennsylvania Higher Education Assistance Agency—a national student loan servicing company. While there, Cameron was responsible for overseeing efforts related to litigation, risk mitigation, and compliance with federal and state laws, including Dodd-Frank. Cameron’s new responsibilities as ombudsman will include overseeing student loan borrower complaints and analyzing complaint data to make recommendations to the Secretary of the Treasury, the Secretary of Education, CFPB Director Kathy Kraninger, and Congress.
On August 15, the CFPB and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator (collectively, “defendants”) for allegedly misrepresenting the contracts offered to veterans and other consumers. According to the complaint, from 2011 through 2016, the defendants offered high-interest credit to consumers, deceptively marketed as purchases of future pension or disability payments. The contracts allegedly required veterans to instruct that their pension direct deposits or monthly allotments be routed to the bank account controlled by the defendants or pay the contracted amounts from other sources, including purchasing life-insurance policies, to ensure the contract amount would be paid. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.
Under the proposed settlement, the defendants are: (i) prohibited from brokering or participating in agreements that sell future pension rights; (ii) required to pay a civil money penalty of $1 to the Bureau; and (iii) required to pay $75,000 to the Arkansas AG’s Consumer Education and Enforcement Fund. Additionally, the settlement imposes a judgment of $2.7 million in redress, which is suspended upon the owner paying $200,000 in redress and making the payments to the Bureau and the Arkansas AG.
On August 12, the CFPB announced a proposed settlement with a defunct for-profit educational institution to resolve allegations that the defendant engaged in unfair and abusive acts and practices in violation of the Consumer Financial Protection Act through its private student loan origination practices. As previously covered by InfoBytes, the CFPB filed a lawsuit in 2014 alleging, among other things, that the defendant offered new students short-term zero-interest loans to cover the difference between the cost of attendance and federal loans obtained by students, but when the short-term loans came due at the end of the students’ first academic year, the defendant forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. According to the Bureau, this practice resulted in a 64 percent default rate on the loans. The terms of the proposed settlement include a $60 million judgment against the defendant as well as an injunction prohibiting the defendant from offering or providing student loans in the future.
Earlier in June, the Bureau announced a settlement with a company that managed student loans for the defendant, which includes approximately $168 million in student loan forgiveness. (See previous InfoBytes coverage here.) The company has also agreed to permanently cease enforcing, collecting, or receiving payments on any of its loans.
On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.
On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”
Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.
On August 6, the CFPB published a blog providing an update on credit access and the Bureau’s first-issued No-Action Letter (NAL), and reporting that use of alternative data in underwriting may expand access to credit. In 2017, the CFPB announced its first NAL to a company that uses alternative data and machine learning to make credit underwriting and pricing decisions. One condition for receiving the NAL required the company to agree to a model risk management and compliance plan, which analyzed and addressed risks to consumers and the real-world impact of its service. Through specific testing, the company worked to answer two key questions: (i) “whether the tested model’s use of alternative data and machine learning expands access to credit, including lower-priced credit, overall and for various applicant segments, compared to the traditional model”; and (ii) “whether the tested model’s underwriting or pricing outcomes result in greater disparities than the traditional model with respect to race, ethnicity, sex, or age, and if so, whether applicants in different protected class groups with similar model-predicted default risk actually default at the same rate.”
According to the Bureau, the company reported that in the access to credit comparisons, the alternative data model approved 27 percent more applicants as compared to a traditional underwriting model, and yielded 16 percent lower average APRs for approved loans, with the expansion in access to credit “occur[ing] across all tested race, ethnicity, and sex segments.” For the fair lending testing, the company reported that no disparities were found in the approval rate and APR analysis results provided for minority, female, and older applicants. Additionally, the company reported significant expansion of access to credit for certain consumer segments under the tested model, including that (i) “consumers with FICO scores from 620 to 660 are approved approximately twice as frequently”; (ii) “[a]pplicants under 25 years of age are 32 [percent] more likely to be approved”; and (iii) “[c]onsumers with incomes under $50,000 are 13 [percent] more likely to be approved.” The Bureau noted that the testing results were provided by the company, and the simulations and analyses were not separately replicated by the Bureau.
On August 2, the CFPB announced that it is extending the comment period on its Notice of Proposed Rulemaking implementing the FDCPA to “facilitate the ability of commenters to consider the issues raised in the NPRM, gather data, and prepare their responses.” The comment period now closes on September 18.
Detailed InfoBytes coverage on the CFPB’s debt collection proposal is available here.
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